Commodities | Sep 06 2006
By Greg Peel
The story so far:
Australia boasts 36% of the world’s known uranium reserves. Number two is Kazakhstan with 14%. Canada has 13%. Canada produces most of the world’s uranium at present – 11,600t last year, compared to Kazakhstan at 4,500t.
Australia only produced 9,000t by comparison, because permission to mine uranium is granted not by a pro-uranium federal government, but by each individual state. Since the anti-nuclear movement of the 70s and 80s Australian states have been reluctant to allow uranium mining.
18% of Australia’s uranium lies in the federally-controlled Northern territory, home to vast deposits at Ranger and Jabiluka. Ranger is currently operating and Jabiluka is targeted to replace Ranger in about 2014, assuming permission is granted by the indigenous traditional owners. Both are owned by the world’s second biggest uranium producer, Energy Resources Australia (ERA), which is the only pure-play uranium stock listed in Australia that is mining Australian uranium. Even then, ERA is majority owned by Rio Tinto (RIO).
(Australian listed stocks nevertheless include those with foreign interests, such as Paladin Resources (PDN) which is about to commence mining in Africa).
7% of Australia’s uranium lies in Western Australia and 3% in Queensland. Both states are against uranium mining at present. Of the two, Queensland seems the most likely to yield. This has sparked a battle over significant reserves at Valhalla, where an attempt to sell Valhalla Uranium (VUL) to Paladin Resources is being presently challenged in court by joint venture partner Summit Resources (SMM).
South Australia had previously lifted its ban on uranium mining, which is fortuitous as that state boasts 72% of Australia’s reserves. South Australia is home to the world’s largest uranium deposit, Olympic Dam, owned by diversified resource giant BHP Billiton (BHP). Olympic Dam is being mined presently, but plans are afoot to triple production.
South Australia is also home to Australia’s only other operating mine, Beverley, which is owned by Heathgate Resources, a full subsidiary of US company General Atomics. And it is home to nearby Honeymoon, owned by Canadian company SRX Uranium One, which has just been given approval to proceed to mining.
Now on to new developments.
UraniumSA is a single-purpose uranium company. It was formed with the collaborative assistance of two Australian listed mining companies – Stellar Resources (SRZ) and Marathon Resources (MTN). Through joint venture arrangements UraniumSA controls 7,638 square kilometres of the highly prospective Gawler Craton in South Australia.
On September 4, UraniumSA announced an IPO initially worth $6 million. Two-thirds of the listing has been offered to existing Stellar and Marathon shareholders on a priority basis. The listing is expected to take place in October but were the offer to be oversubscribed a total of 61.2 million shares can be issued at 20c, bringing total capitalisation to $12.24 million.
UraniumSA’s corporate strategy is stated as:
“Mineral exploration is the first component of a business activity that expends capital to discover and then develop mineral deposits that are capable of being profitably exploited. Recognising this, and to optimise the companies [sic] ability to achieve long-term commercial success, our Board is dominated by independent directors who bring a diverse range of business, financial, commercial, technical and entrepreneurial skills to the company.”
UraniumSA’s primary objective is to have a portfolio of projects with positive exploration results, drill-indicated resources of uranium mineralisation, and real possibilities for mine development, within two years.
The list of independent directors makes for interesting reading given the history of a particular Mr Xu Gang. Xu Gang is a uranium geologist who worked for the Chinese National Nuclear Corporation (CNNC, the sole uranium buyer in China) for more than 9 years. Now based in Beijing, and working regularly in Perth, he has “successfully developed a comprehensive business network in China and Australia and established connections with government agencies at various levels”.
Working with the Perth based consultancy and project management group Sustainability, Xu represents CNNC in Australia. In this role, he facilitated the signing of the first development and off-take agreement between an Australian uranium company and CNNC. He also maintains “a good working relationship” with Chinese nuclear power companies.
In April, the Australian government signed a deal with China which sees Australia as China’s preferred source of uranium. Exports are not expected to begin for another three years but by that time Australia will need to have seriously ramped up production – to double its size just to meet China’s needs.
Where will this uranium come from? Well Olympic Dam is about to undergo massive expansion, but the program is set to run over several years. Beverley is operating and Honeymoon is about to start. Ranger is on the decline, so ERA is madly exploring prospects around the immediate vicinity. The plan as yet is not to bring Jabiluka on stream until Ranger is on the wane, and there still remains the problem that traditional landowners can block development. Jabiluka is situated in the World Heritage-listed Kakadu National Park.
The current Western Australian government has definitively said No. It has grave concerns that the federal government’s “cradle to the grave” plans – whereby spent uranium is returned to Australia for reprocessing or storage in order to prevent it being used for anything sinister – will turn the state in to a nuclear dump.
The current Queensland government has less definitively said no based on ridiculous, trumped-up stories about destroying the coal industry. Coal industry unions are driving the government’s stance. The government has hinted, however, that if the federal Labor opposition reviews its “no new mines” policy at its annual conference in April, things could possibly change. This is what’s caused a bit of a scramble among Queensland miners and hopeful investors.
Apart from needing to increase uranium production in order to simply satisfy China’s needs, The Australian government has also held preliminary discussions with India. This has been met with stern opposition at home, given India is not a signatory to the Nuclear Non-Proliferation Treaty. India would supposedly provide safeguards that Australian uranium would not be used to make weapons, but then the Australian people have little confidence and are not particularly enamoured with Chinese sales either.
Nevertheless, the Australian government is enthusiastically pursuing a policy to be resource provider to the world, and that will mean increased uranium sales, one way or another. As South Australia is the only state prepared to allow uranium mining at this stage, UraniumSA appears like an opportunity to get into an investment in Australian uranium that actually has legs.
Having said that, prospective investors must always be cognisant of the fact that reaching a level of actual uranium production can take many, many years, irrespective of the stated objectives of the uranium miner. Uranium analysts are expecting uranium prices to move from levels of around US$45/lb to US$60/lb or over by 2008-09 due to a growing gap between demand and supply. However, projected supply is expected to begin to catch up by this stage, possibly sending the price downward once more. Uranium is not a rare commodity in the ground. The situation will become interesting by 2013, however, when the world runs out of secondary supply from decommissioned Russian warheads.